We decompose the "China shock" into two components that induce different adjustments for firms exposed to Chinese exports: an output shock affecting firms selling goods that compete with similar imported Chinese goods, and an input supply shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the output shock is detrimental to firms' sales, employment, and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect -
although often not significant - of the input supply shock on firms' sales, employment and innovation.
Philippe Aghion, Antonin Bergeaud, Matthieu Lequien, Marc Melitz and Thomas Zuber
30 November 2022 Paper Number POIDWP047
Download PDF - Opposing firm-level responses to the China shock: output competition versus input supply
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This POID Working Paper is published under the Programme on Innovation and Diffusion.